Fabrizio Zarcone, the newly appointed World Bank country manager for Thailand, recommends three fiscal measures to help protect Thai households from shocks, build social cohesion and resilience while creating space for public investment.
Mr Zarcone said the Thai government's response to the Covid-19 shock was commendable. Large amounts of social assistance was provided rapidly, including to those most in need.
As Thailand moves into the recovery phase, fiscal consolidation will become a greater priority as well as rebalancing public spending towards public investment to help support the government's vision to build back better and greener, he said.
SHOCK-PROTECTION MEASURES
For Thailand to improve on social and economic concerns, Mr Zarcone listed three fiscal measures that can protect Thai households from shocks.
First, he suggested more targeted social protection for households in need of support. Direct transfers to poor households and firms, once the relevant digital infrastructure is in place, would alleviate the pain from the cumulative shocks without distorting price signals or subsidising the wealthy.
Such a move would also free fiscal space for other ends, said Mr Zarcone.
Second, speedy implementation of projects in the public investment pipeline, such as rail, air and road linkages, can provide demand-side support for the recovery in the short to medium-term, while boosting economy-wide productivity and crowding in private investment, he said.
Third, mobilising greater fiscal revenue through raising taxes, including green taxes such as a carbon tax, as well as reducing tax exemptions is needed to support fiscal and environmental sustainability, while minimising the need to reduce public spending, said Mr Zarcone. This will be important to meet the needs of a rapidly ageing society and the challenges of climate change, he said.
STRUCTURAL REFORM NEEDED
According to Mr Zarcone, Thailand will need structural reforms to significantly increase investment and productivity growth if it wants to achieve the growth needed to reach the "high-income status" set out in its 20-year National Strategy.
To achieve the target of becoming a high-income country by 2037, Thailand will need to sustain long-run growth rates above 5% beyond 2025, he said.
Improving total factor productivity growth and raising investments alone will be insufficient to sustain this growth rate, according to Mr Zarcone.
Thailand can only sustain this growth by nearly doubling the rate of public and private investments, while maintaining the same historical total factor productivity trajectory as South Korea when it was at Thailand's current GDP per capita level, he said.
A policy agenda targeting increased productivity growth should focus on openness, competition and innovation, said Mr Zarcone.
While Thailand has accumulated adequate fiscal and monetary buffers since 1997, recent developments have highlighted Thailand's oil dependence and vulnerability to global supply chain disruptions.
More environmentally sustainable approaches to economic production, such as the circular economy model, can help promote growth that is more sustainable and resilient to external shocks, he said.
The circular economy aims to replace to traditional "take-make-waste economy" with one based on reusing renewable natural capital and keeping materials and products in use for as long as possible.
Fiscal consolidation and revenue mobilisation can also help Thailand rebuild fiscal buffers to deal with future shocks, said Mr Zarcone.
The Russia-Ukraine war has set back the Thai recovery and highlighted the economy's dependence on energy imports, particularly oil, he said.
"It is going to be difficult to increase exports when incomes are being squeezed across the world. A circular economy transition can help reduce exposure from future shocks and raise growth in certain sectors in the medium term," said Mr Zarcone.
He said the economy as a whole, in particular food and agriculture, construction, and electrical appliances and electronics can benefit from adopting innovations related to a circular economy.
A transition towards a circular economy could increase Thailand's GDP by about 1.2% and create nearly 160,000 additional jobs by 2030, representing 0.3% of total employment, compared with a baseline of business as usual, according to the World Bank's "Thailand Economic Monitor" report published in June 2022.
Such a transition could cause Thailand's greenhouse gas emissions to fall by about 5% by 2030, while dependence on imported energy would decline, helping to insulate Thailand from high, volatile commodity prices, found the report.
The challenge for the Thai government is to provide a supporting framework to share knowledge and innovation, as well as create further incentives for businesses to adopt circular business models, said Mr Zarcone.
The World Bank's appointment of Mr Zarcone to Thailand took effect on July 1.
He succeeds Birgit Hansl after her four years of heading the World Bank office in Bangkok.
Prior to the appointment, he was country manager for Bulgaria, Czech Republic and Slovakia, where he supervised a large and complex portfolio of technical assistance projects.